Social Security is Not a Retirement Safety Net
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Recent strikes and protests in France at times brought the country to a standstill. The reason? The government under President Macron increased the retirement age from 62 to 64.
The U.S. had a similar wave of protest in 2011 when Speaker Paul Ryan suggested changing our retirement age from 67 to 69. Our protests took the form of ads showing a man, implied to be Ryan, dumping grandma out of a wheelchair over a cliff.
No wonder Social Security is referred to as a political “third rail,” after the third rail of an electric railroad that carries voltage high enough to kill anyone who touches it. For politicians, suggesting any threat to Social Security is a career-ending risk.
Yet Social Security has always been born from political rather than financial necessity. The initial retirement age was not based on life expectancy but rather on the political and social realities of the time.
According to an April 3, 2023, New York Times article by Dana G. Smith, “What Is The Ideal Retirement Age For Your Health?,” Germany’s first national retirement benefit was passed in 1881. Designed to appease the left wing that wanted an old age security net, its retirement age was 70. The average life expectancy was about 40. To put that into perspective with today’s numbers, it would compare to starting Social Security at age 138, since the average life expectancy at birth (pre-COVID-19) was about age 79.
In 1916, Germany’s retirement age was lowered to 65, which became globally accepted as the standard. President Roosevelt established the U.S. Social Security system in 1935, with 65 as the national retirement age. This continued the practice of establishing a retirement age well over the actual life expectancy. The average American died at 60, five years before being able to collect on Social Security. Basically, you had to win the longevity lottery to ever see a dime of Social Security, and even those who did often lived in poverty because they were too old to work and too young to receive a pension. If we followed the same formula today, using the life expectancy of 79, we would start Social Security at age 86.
It wasn’t until 1970 that the average person lived to age 70, long enough to collect Social Security benefits for five years. Today, the full retirement age for Social Security is 67 for people born in 1960 or later.
Is retirement at 65 an optimum age today? The New York Times article cited gerontology researchers in arguing that it may not be.
Dr. Pinchas Cohen, dean of the Leonard Davis School of Gerontology at the University of Southern California, argued that for most workers not in jobs requiring manual labor, a retirement age under 65 “makes no sense” from a health standpoint.
Dr. Lisa Renzi-Hammond, director of the Institute of Gerontology at the University of Georgia, called retirement in the 70s “reasonable” from a cognitive perspective for people in knowledge-based jobs. She said, “If retirement age is set based on the capabilities or competence of employees, there’s absolutely no reason to have a retirement age in the 60s.”
Then, too, staying in the workforce can maintain our cognitive abilities. Some research has even found that working longer may help prolong our lives. This may be why two different clients have answered my question, “What does retirement mean to you?” with, “It means you die.”
Age 65 may have long been the “standard” retirement age. That does not make it the right choice for everyone. When to retire is a complex, individual decision based on your own financial, physical, and emotional wellbeing.
Rick Kahler, MS, CFP®, CFT-I™, CeFT®, CCIM, is the founder of Kahler Financial Group, a Rapid City, SD-based fee-only Registered Investment Advisor.